We Think That There Are More Issues For Atlas Energy Solutions (NYSE:AESI) Than Just Sluggish Earnings

The latest earnings report from Atlas Energy Solutions Inc. (NYSE:AESI ) disappointed investors. We did some digging and believe that things are better than they seem due to some encouraging factors.

Our free stock report includes 3 warning signs investors should be aware of before investing in Atlas Energy Solutions. Read for free now.

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. As it happens, Atlas Energy Solutions issued 13% more new shares over the last year. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Atlas Energy Solutions' historical EPS growth by clicking on this link.

How Is Dilution Impacting Atlas Energy Solutions' Earnings Per Share (EPS)?

As you can see above, Atlas Energy Solutions has been growing its net income over the last few years, with an annualized gain of 13% over three years. Net income was down 74% over the last twelve months. But the EPS result was even worse, with the company recording a decline of 81%. So you can see that the dilution has had a bit of an impact on shareholders.

If Atlas Energy Solutions' EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the US$16m impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Atlas Energy Solutions to produce a higher profit next year, all else being equal.

Our Take On Atlas Energy Solutions' Profit Performance

Atlas Energy Solutions suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Based on these factors, it's hard to tell if Atlas Energy Solutions' profits are a reasonable reflection of its underlying profitability. So while earnings quality is important, it's equally important to consider the risks facing Atlas Energy Solutions at this point in time. For instance, we've identified 3 warning signs for Atlas Energy Solutions (1 doesn't sit too well with us) you should be familiar with.

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.